Monday, December 13, 2010

The Executive Board of the International Monetary Fund (IMF) today completed the fifth review of Zambia’s economic performance under a program supported by the Extended Credit Facility (ECF). Completion of the review enables the immediate disbursement of an amount equivalent to SDR 18.395 million (about US$28.3 million), bringing total disbursements under the arrangement to SDR 201.7 million (about US$310.3 million).

In completing the review, the Executive Board also granted a waiver for the nonobservance of a performance criterion on non-concessional external debt at end-December 2009 and approved the modification of the performance criteria for end December 2010 on net domestic assets of the Bank of Zambia and on net domestic financing of the central government, as well as a modification to the performance criterion on non-concessional external debt. The ECF arrangement for Zambia was originally approved in June 2008 (see Press Release No 08/134), and then augmented in May 2009 by SDR 171.185 million (about US$256.4 million) to an amount equivalent to SDR 220.095 million (about US$329.7 million) (see Press Release No. 09/147). Zambia has been a member of the Fund since September 1965.

Following the Executive Board’s discussion of Zambia, Mr. Naoyuki Shinohara, Deputy Managing Director and Acting Chair, made the following statement:

“Zambia’s economic prospects continue to improve, thanks to sound macroeconomic policies and progress in structural reforms. Growth remains strong, inflation is subdued, and the external position has been solid. The main medium-term challenge is to create fiscal space for priority spending, enhance economic diversification and reduce poverty.

“A prudent policy stance will help shelter the economy from continued global uncertainty and ensure that underlying inflation, especially on nonfood items, continues to decline as targeted. The fiscal strategy remains centered on increasing revenues, including from the mining sector, containing wages and other recurrent spending, and improving the efficiency of spending. The 2011 budget is consistent with making significant progress in meeting these challenges.

“Financial sector conditions are gradually improving, with credit to the private sector slowly reviving, although nonperforming loans remain high. While most banks are well capitalized and have ample liquidity, the authorities need to strengthen bank monitoring and contingency planning, to contain vulnerabilities.

“Financing needs are becoming more acute with regard to addressing growth-critical infrastructural requirements. Increased but prudent reliance on non-concessional financing is appropriate given the challenges in identifying additional concessional resources and the moderate external debt levels. However, non-concessional financing should remain strictly directed to growth-critical spending that would provide high economic returns. The strengthening of debt management and project appraisal capacity are critical in this regard and the authorities’ determination to make progress in these areas expeditiously is welcome,” added Mr. Shinohara.